The NZD had a textbook “buy-the-rumour-sell-the-fact” reaction to the RBNZ’s 25-basis point rate hike last week. But has anything really changed for the currency?
Yes – the NZD flushed lower after the RBNZ’s 25-basis point hike – but that wasn’t too much of a surprise. The markets had already priced in the hike (so the bar for a hawkish surprise was pretty high going into the event).
The most important takeaway from the meeting was that the bank still has an unchanged medium-term outlook for both inflation and employment. This is significant because that means the rate path projection of seven hikes between Q4 of this year and H1 2023 remains intact.
With the NZD now officially sitting on the highest cash rate among the majors, any further increases in the cash rate should fuel upside potential for the NZD in the months ahead, especially against the low yielders like the JPY and CHF.
As always, we have more on this and how we can look to take advantage of it in our week ahead video.